How much will healthcare costs set back your retirement?

The rising cost of healthcare in the U.S. Image

The rising cost of healthcare in the U.S. Image: Images_of_Money/Flickr/CC BY

The rising cost of healthcare is a concern for us all. But it is an especially immediate concern for retirees, who worry about getting by in the coming years at an age when health issues are increasingly common. A recent report, estimating those costs for the average retired couple, should cause many to take stock.

Healthcare costs largest challenge for retirees

The report by Fidelity Investments found that, as of 2012, a 65-year-old retired couple should sock away at least $240,000, earmarked for future healthcare costs. That is up by 4 percent from 2011’s $230,000 estimate.

The Fidelity Retiree Health Care Costs Estimate looks at couples who do not have medical coverage from employer-sponsored retirement programs, but who do qualify for federal Medicare assistance. It does not factor in estimates for nursing homes, dental costs or over-the-counter medications.

According to Market Watch, an earlier study by the Employee Benefits Research Institute came to a similar conclusion. It found that 65-year-old retired couple in 2012 should save $227,000 just to give them a three-in-four chance at being able to pay their medical bills throughout retirement.

Costs on the rise, save one dip

Except for one drop in 2011, medical costs have risen every year since 2002, when Fidelity first started issuing its annual report. The one-time dip was the result of policy changes in Medicare that cut out-of-pocket drug expenses for many.

Brad Kimler, the executive vice president of Fidelity Benefits Consulting, said “it is critical that individuals include health care costs in their retirement savings strategies today so they can be prepared to pay their medical bills throughout retirement.”

Social Security won’t cut it

Younger taxpayers who have not yet thought seriously about retirement planning should take heed from the report. And older Americans who plan to rely of Social Security benefits to get them by, should think again.

“Retirees relying entirely on Social Security to fund their health care costs will be faced with difficult challenges in the future,” Kimler said. “Medical inflation is outpacing salary increases and cost of living adjustments for many peoples.”

Social Security benefits are adjusted for the cost of living at an annual rate of 2.3 percent. Healthcare costs in the last decade, however, have risen by 6 percent a year, with the exception of the one decline and last year’s 4 percent increase, which has overridden most of the ground gained in 2011.


Market Watch
Chicago Tribune

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